FTSE jumps again but Barclays and Lloyds head in opposite directions

Leading shares are on track to close in positive territory for the year so far, with the market continuing its buoyant performance again today.

The FTSE 100 is up 64.13 at 4460.62, following a 4.5% jump in the Nikkei overnight and a 101 point rise on Wall Street. The index opened the year on January 2 at 4434.17. Yesterday's US job figures from the private sector were not as bad as feared, and there are also signs of life in the Chinese economy. On top of that US treasury secretary Timothy Geithner indicated none of the US banks examined by regulators was at risk of insolvency.

But traders sounded a note of caution. The underlying economy is still on the ropes, and there are a few key events to get through before the end of the week, notably the results of the US stress tests due tonight - which could disappoint if Geithner proves to have overemphasised the positive - and US non-farm payroll figures tomorrow. The Bank of England also releases its latest interest rate decision at midday, but it would be a complete shock if it made any change this time round. Chris Hossain, Senior Sales Manager, ODL Securities said:

"Another stellar performance in the US suggests that confidence is spreading like wildfire. With the results of the banks stress tests being released after the close of play tonight, it will be interesting to note if profits are taken off the table ahead of the announcements. Whilst it can't be argued that we are enjoying a fantastic run, there are still lingering doubts if such a rally is justifiable. Is being 'not that bad' equate to a four figure rally on some of the major indices?"

There were contrasting performances from two of the major UK banks which released updates today. Barclays is 7.5p better at 295.5p after it unveiled a 15% rise in first quarter profits, with its investment banking arm living up to expectations and overcoming a big rise in bad debts. Sandy Chen of Panmure Gordon - a long time bear of the bank - was not impressed, however. He said:

"We haven't seen much to change our views that the strong first quarter trading performance will prove unsustainable, leaving Barclays and the rest of the banks vulnerable to further rises in impairments."

Lloyds Banking Group is heading the other way. Its shares are down 11.2p at 102p. Bad debts have also risen significantly and it repeated it expected to make a loss for the year. Back to Sandy Chen:

"The timing of today's interim management statement was unexpected (at least by us); the content was largely as expected. Revenue performance was good, but margins are narrowing as lower deposit margins and higher funding costs outweigh higher asset pricing. The main concern is rising impairments, especially in the corporate loan book, and within that especially in commercial real estate. Management expect that 2009 corporate impairments will be over 50% higher than 2008.

"The government asset protection scheme (due in the next few months) will effectively cap some of these charges, but the macro outlook is still poor.

"Lloyds has doubled its share price recently, but we don't think the outlook on fundamentals justifies this strength. We downgrade from hold to sell."

Back on the positive tack, consumer goods group Unilever has jumped 106p to £14.20. The company, one of a number to issue trading statements today, said first quarter sales were up by a better than forecast 4.8%. Martin Deboo at Investec said:

"Unilever's first quarter results are ahead of the market's expectations on the key numbers of organic sales growth and underlying margin progression, which was particularly strong in the Americas and Asia Africa/Central and Eastern Europe. Viewed against low expectations and positive chief executive mood music, we see this as an encouraging result. However, very weak performance in Western Europe takes the shine off the numbers for us.

"We will be reviewing our forecasts and target valuation in the light of these numbers. Despite the better than expected first quarter performance, we view 2009 as a difficult year for Unilever with considerable volatility in the moving parts of revenue and margin."

Among the insurers RSA Insurance Group rose 1.4p to 127.1p after a confident trading statement, while Legal and General was lifted 4.1p to 69.5p.